Capacity Planning at Arnold Palmer Hospital
Case Scenario:
Since opening day, the Arnold Palmer Hospital has experienced an explosive growth in
demand for its services. One of only six hospitals in the U.S. to specialize in health care for
women and children, Arnold Palmer Hospital has cared for over 1,500,000 patients who came to
the Orlando facility from all 50 states and more than 100 countries. With patient satisfaction
scores in the top 10% of U.S. hospitals surveyed (over 95% of patients would recommend the
hospital to others), one of Arnold Palmer Hospital’s main focuses is delivery of babies.
Originally built with 281 beds and a capacity for 6,500 births per year, the hospital steadily
approached and then passed 10,000 births. Looking at Table S7.3, Executive Director Kathy
Swanson knew an expansion was necessary.
With continuing population growth in its market area serving 18 central Florida counties,
Arnold Palmer Hospital was delivering the equivalent of a kindergarten class of babies every day
and still not meeting demand. Supported with substantial additional demographic analysis, the
hospital was ready to move ahead with a capacity expansion plan and a new 11-story hospital
building across the street from the existing facility.
Thirty-five planning teams were established to study such issues as (1) specific forecasts,
(2) services that would transfer to the new facility, (3) services that would remain in the existing
facility, (4) staffing needs, (5) capital equipment, (6) pro forma accounting data, and (7)
regulatory requirements. Ultimately, Arnold Palmer Hospital was ready to move ahead with a
budget of $100 million and a commitment to an additional 150 beds. But given the growth of the
central Florida region, Swanson decided to expand the hospital in stages: the top two floors
would be empty interiors (“shell”) to be completed at a later date, and the fourth-floor operating
room could be doubled in size when needed. “With the new facility in place, we are now able to
handle up to 16,000 births per year,” says Swanson.
Please assist with following:

Write an executive summary including responses to the case questions

Use a regression analysis to complete spreadsheets to forecast the point at which
Swanson needs to “build out” the top two floors of the new building as required (see table
S7.3 for birth data).
Discussion Questions:
1. Given the capacity planning discussion in the text (see Figure S7.6 for example) what
approach is being taken by Arnold Palmer Hospital toward matching capacity to demand?
2. What kind of major changes could take place in Arnold Palmer Hospital’s demand
forecast that would leave the hospital with an underutilized facility (namely, what are the
risks connected with this capacity decision)?
3. Use regression analysis to forecast the point at which Swanson needs to “build out” the
top two floors of the new building, namely, when demand will exceed 16,000 births.
FIGURE S7.6: MMU Mfg. For Three Department
Department
Effective Capacity Recent Efficiency
Design
93,600
.95
Fabrication
156,000
1.03
Finishing
62,400
1.05
TABLE S7.3
TABLE S7.3
Births at Arnold Palmer Hospital
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Births
6,144
6,230
6,432
6,950
7,377
8,655
9,536
9,825
10,253
10,555
12,316
13,070
14,028
14,634